The U.S. Federal Reserve is expressing confidence in America’s economy.
The Fed’s No. 2, Stanley Fischer, spoke optimistically about a key yardstick for the economy. He noted that a recent pick up in inflation could currently be moving up towards the Fed’s 2% target.
“We may well at present be seeing the first stirring of an increase in the inflation rate — something that we would like to happen,” Fed vice chairman Fischer said in Washington Monday.
It’s key timing for such optimism: Fischer’s comment are the last look at the Fed’s thinking before its committee meets next week. They’re not expected to raise interest rates at this meeting but what will be key is the Fed’s new forecast for rate hikes in 2016.
Fischer’s comments push back against concerns that the Fed would drastically change its plans.
In December, the Fed committee’s forecast called for about four rate hikes in 2016. However, extreme volatility in stock markets has spooked investors and Fed members alike. At one point, some investors even pushed aside the likelihood of rate hikes for the entire year.
Comments like Fischer’s suggest the Fed is gaining confidence about its two key measures — inflation near 2% and a strong job market. Many Fed officials have said the job market is at or near “full employment.” The unemployment rate is 4.9%.
Inflation has been virtually non-existent in recent years, which has held back the Fed from raising rates. The Fed increased its key interest rate in December for the first time since 2006.
But recently, inflation is moving in the right direction. The Fed’s measure of inflation has increased for three straight months. It’s still only at 1.3% — well below the central bank’s 2% target. However, Fed officials aren’t waiting for inflation to hit the target, they just want to see it move towards it. If inflation continues moving up, it would warrant more Fed rate hikes this year.